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The Social Sector Is Embracing Blockchain. Should It?

Salim Teja leads venture services at MaRS. He is an entrepreneur and tech investor, with industry expertise in software and digital media.

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It sounds like a marriage that’s doomed to fail: Socially-conscious organizations aiming to make a better world, paired with blockchain, a technology best known for enabling rampant cryptocurrency speculation. But social impact activists are starting to kick the wheels of blockchain technologies, and there are reasons for them to like what they see -- plus some causes for caution.

A recent report from Stanford Graduate School of Business identified 193 projects trying to use blockchain for social good. They’re at work in systems across the board, including improving health record keeping, expanding access to the financial system, making supply chains more transparent and combatting climate change. More than 60 of these started in the last year. Interest in blockchain is growing so quickly that it was a theme this year at SOCAP in San Francisco and Toronto’s Social Finance Forum, two prominent conferences for social impact investors. (Full disclosure: MaRS hosts the Social Finance Forum.)

Aside from processing donations, few applications for blockchain immediately spring to mind thinking of the social sector. So, it’s tempting to write off these projects as blockchain boondoggles that are more hype than help.

In some cases that may be true — there’s no shortage of blockchain evangelists shilling it as the answer to any problem — but it would be a mistake not to take these efforts seriously. Blockchain can be a surprisingly good fit for social impact efforts. Enthusiastic protagonists like the Blockchain for Social Impact Coalition believe the technology could form a new infrastructure backbone for the sector because it allows charities to handle grant payments, track expenditures and meet reporting requirements for multiple funding bodies all in one system.

One of the main benefits of blockchains is that they do an end-run around fee-charging intermediaries like banks by using the distributed computing power of network members to perform and log transactions. That cuts costs and allows for even more efficiencies, like smart contracts that automatically activate once the network determines a particular transaction has been carried out. It’s not hard to see why this makes blockchain technology attractive to charities and nonprofits, where every dollar on overhead is one that can’t be spent on helping people.

The most high-profile example of blockchain being used for social good comes from the United Nations World Food Program. It has switched processing of spending accounts for food-aid recipients onto blockchain at its Za’atari refugee camp in Jordan. The camp’s 100,000 residents access their accounts using iris scanners at food store checkouts, which confirm their identity and then reconcile the bill against their family’s account using blockchain. The system has helped the UN cut out banks from the transactions, reducing its processing costs by 98% and releasing money to deliver more humanitarian aid.

Because blockchain systems are built on transparency and accountability — all network members can see all transaction records — there’s also the potential for them to be the scaffolding on which entirely new markets are created for underserved communities. One new startup, Choco4Peace, plans to use the system to connect Colombian farmers with potential buyers and investors with the aim of moving them from growing illicit drugs to cocoa crops instead. And I work with a company that is connecting volunteers with opportunities to do good, such as planting trees or registering voters.

Meanwhile, in South Asia and Latin America, companies are emerging that use blockchain to extend microloans to small businesses that are shut out of the existing banking system or face punishing interest rates.

The question is: How many of these trials will translate into genuine use cases that drive social good and do so better than the existing alternatives? There’s a reason for charities and nonprofits to proceed with a degree of caution. The Stanford study found that in only 20% of cases did blockchain provide a solution that couldn’t be achieved by other means. Only the largest organizations will have the technical expertise needed to separate the genuine use cases from the froth.

In my view, blockchain will ultimately find a narrow set of applications where its use can make a significant difference. Community microgrids that allow homeowners to buy and sell solar energy from each other seem to be one promising area. Another is tracking food through supply chains. Another company I work withhas a blockchain pilot project for farm-to-fork tracking of crops from farmers in eastern Ontario. The aim is to unpick commodity markets and allow high-quality growers to differentiate their product and create a niche for themselves.

These cases meet the basic test for using blockchain smartly: In each instance, there’s a genuine need for multiple entities to exchange information easily and either there is no alternative or the system is expensive. If those criteria aren’t met, I’d suggest that socially focused organizations take a wait-and-see approach until it becomes clearer how the technology can be successfully used.

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